What’s Wrong With Social Security Reform?

With all the talk about what’s wrong with Social Security (Medicare’s the real looming crisis), it may be time to debunk the reforms.

The most dramatic suggestion — to privatize the system gradually by moving people into mandatory individual investment accounts — has great surface appeal but some pretty big problems:

While you’re making the transition, one generation must in effect shoulder the nearly impossible burden of two systems. After all, no one advocates stopping, cold turkey, the payments today’s workers make to today’s retirees.

What do you do if a person invests poorly? You’d still need a safety net. Indeed, what an incentive to gamble! If you win, you retire in luxury. If you lose, you’re at least assured some poverty-level maintenance program.

Won’t this leave an awful lot of unsophisticated people prey to all manner of sales pitches, commissions and transaction costs?

But mainly (to my mind): why should everyone have to save — and live, once retired — as if he or she will live to be 110? Social Security is not just a “pact between generations,” though it is that, with each generation pledging to assist the previous one. (The problem, of course: we now have just 3.3 workers for each retiree, and we’re headed for just 2.) It is also a pact among citizens of the same generation.We all pay in more or less equally (given equal incomes), knowing that those who die earlier than average will have wound up subsidizing those who outlive them. Yet this seems a reasonable deal, because it keeps us from all having to live like paupers at age 65 in case we have to stretch our funds to last 35 or 40 years. (So there’s another reason we’d still need a taxpayer-financed safety net. Would we allow 88-year-olds whose cash has run out to freeze and starve?) Really, smokers should by age 55, say, be excused from further Social Security contributions, since they’re so much less likely to collect as much as nonsmokers. (Not that I’m seriously proposing this. Perversely, it would encourage nonsmoking 55-year-olds either to lie or to take up smoking.)

There’s a reasonable case for going part way, by restoring Social Security more toward the safety-net-of-last-resort bare subsistence sort of thing I believe it was originally intended to be. In other words, with enough warning, you could eliminate benefits to those who don’t need them and cut back somewhat on benefits even to those who do. The savings from this would be used to fund the individual investment accounts people are talking about. But why? Why take that extra step, in effect penalizing people who live longer than average, as tens of millions will?

After all, there’s still plenty of variety in retirement lifestyles. It’s not as if America becomes a homogenized, socialized society even with today’s rather modest benefit levels. Some retire in splendor; others eke out a life on Social Security alone. If the “safety net” is indeed a bit above bare subsistence . . . well, why not? For one thing, it’s one relatively small concession to a sort of national neighborliness. A social compact. It binds us together. We’re the only advanced country in the world without universal health insurance, and we no longer have the common experience of the draft or of Walter Cronkite every night. Maybe we should keep Social Security.

As usual, I know if I’m missing something here, I can rely on you to point it out.

Tomorrow:Social Security II (the problem with fixing the system by investing its funds in stocks)